New Greek Government Charts New Course on Bailout

Published June 22, 2012

| Reuters

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Greece's new government has been sounding strangely like its defeated anti-austerity opponents since it came to power this week on a pledge to remain in the eurozone and uphold its commitments to foreign creditors.

Having campaigned as the best leader to reassure European partners that Greece would be a reliable partner, Prime Minister Antonis Samaras has spent the days since Sunday's election promising to revise a bailout deal painfully hammered out as recently as March.

Despite a barrage of warnings from European leaders including German Chancellor Angela Merkel and French President Francois Hollande that Greece had to respect its commitments fully, the winning parties obviously feel they cannot ignore the uncompromising message from angry Greek voters.

Samaras's center-right New Democracy party may have won Sunday's election but his margin of victory over the leftist Syriza party, which campaigned against the bailout, was extremely narrow and the memory of violent anti-austerity protests which shook Athens last year are still fresh.

"Parties were forced to adjust to people's demands which is why we saw some parties with a strong pro-bailout character changing their stance in the pre-election period and becoming more anti-bailout," said Thomas Gerakis, head of Marc pollsters.

Pledges of reform and budget discipline have been outweighed by promises to relieve the widespread hardship after five years of a recession that has been worsened by the punishing austerity medicine imposed as a condition of the bailout.

Samaras will try to win two more years to meet deficit reduction targets, an objective that Greek officials say could require an extra 16-20 billion euros in foreign funds.

The New Democracy leader is in any case a late convert to the bailout, which he opposed when it was agreed by the previous Socialist government, only moving to back the deal following intense international pressure.

His margin for maneuver is also limited by the coalition he leads, an unlikely alliance that includes both the Socialist PASOK, traditional rivals of New Democracy and the smaller Democratic Left, which fought the election on an anti-bailout platform almost as tough as Syriza's.

The new government's vow to renegotiate the bailout while staying in the euro zone seems eerily close to the campaign pitch of charismatic young Syriza leader Alex Tsipras who surged on a wave of anti-austerity sentiment into second place in the election.

"Political decision-making in times of economic hardship is always difficult and in a coalition the problems are magnified," said Chris Williamson, chief economist at London-based economics consultancy Markit.

"There is lot of pressure from the Left, which garnered a lot of support, so there's going to be a lot of tough negotiations," he said.

AUSTERITY

With the cabinet barely sworn in, what it will all mean once serious negotiations begin remains to be seen but there is widespread acknowledgement that Greece's near-bankrupt economy can only take so much more austerity.

Officials from the international "troika" of the European Union, European Central Bank and International Monetary Fund, overseeing the 130 billion euro bailout deal are due to visit Athens in the next few weeks to talk to the government and assess the situation.

European Union officials have acknowledged that a deeper-than-expected recession and the weeks of campaigning since the last election in May - which ended with no party able to form a government - have knocked Greece off track. There have been clear signals that some flexibility can be expected, if not nearly as much as the Greeks want.

Next week's European Union summit in Brussels will provide the first concrete test of how seriously the rest of Europe, and in particular chief paymaster Germany, will take the pleas from Athens that more time is needed.

"That's going to be an important moment to see how flexible the Germans are willing to be. Germany wants to see commitment to the deficit reduction targets and to see that Greece means business," Williamson said.

That in turn could decide the future of a fragile coalition which will face huge internal pressures if public fury at the bailout terms is not at least partially calmed.

With the traditional summer break approaching and all sides keen for a period of calm after the frenzied events of the past months, a few weeks' respite is possible but it will not be long before the real state of the government is clear.

"I believe that the crucial period will be late autumn, sometime in November-December when things will be more clear," Gerakis said.

"People will then see whether it is indeed a durable, long-term government or a short-lived one."